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04:03 on Saturday
28 August 2004

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... and the Chancellor taketh away - but from whom?

No one is expecting the Chancellor to be announcing tax cuts in this month's pre-budget report and most commentators are expecting him to raise additional revenue to meet the government's existing commitments on public services. However, he ruled out increases in personal tax rates for the lifetime of this parliament during the election campaign and it seems unlikely that the Chancellor would choose to tax business more heavily in time of impending recession.

A softer target could be increasing the upper limit for National Insurance Contributions, effectively taxing "Middle England" but far enough ahead of the next election to be politically acceptable. There is also scope to increase government borrowing within the treasury's "prudent" rules given the repayments of the national debt in recent years.

So will there be any give-aways? If there are any tax cuts they are likely to "highly targeted" cuts for small businesses, probably in the form of additional tax relief for business investment. The Chancellor is also likely to pad out his speech by announcing "benefits to business" that will cost the treasury very little, for example cutting red tape or opening up of government contracts to SME's as announced last month. And if he runs true to form we can expect to hear more about the tax credits he has already announced for babies and pensioners.

There are also likely to be special measures for industries hit by worries over terrorism. The airline and tourist industries must be favourites for some help. There might also be new tax allowances for business security equipment, although tax relief on gas masks is a bit of an outside bet! However, judging by the level of help given to the farming industry to help with the aftermath of foot and mouth, the help is more likely to be giving businesses more time to pay their tax bills than any significant input of cash.

Similarly, now that the main phase of foot and mouth disease seems to have been quelled, we may see a group of smaller (and cheaper) measures packaged together as a "Rural Regeneration Plan. The Chancellor likes to have a theme to hang his speech on so that it sounds good on the TV news without changing the tax legislation and more importantly the Treasury's receipts very much.

One thing we can be fairly certain about is that there will be increases in the Inland Revenue's powers to investigate taxpayers and businesses; this year's excuse being that more powers are needed for the war against terrorism.

Overall don't expect many fireworks in this year's report but watch out for the small print! for further information contact i.e.taxguard 0800 9759010 or www.ie.taxguard.co.uk

November 2001




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